Monday, October 12, 2009

October 12, 2009: Morning Call

October 12, 2009: Morning Call

Fair Value: SP500 – 1067.88; NDX: 1726.37; DOW: 9811

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1041 support/ 1110 resistance


Pre-market EPS: FAST (.33/488.2)
12:15: NEC Chair Larry Summers speaks on the economy
13:15: Treasury’s Krueger speaks on the economy

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 8 points above fair value and the NASDAQ futures are trading 9 points above fair value at 7:25am ET. The equity futures are reacting to strength in European markets, which are up 1.3% to 1.6%. PHG is up nearly 7% on a strong earnings report, helping to propel technology, industrial, and basic material sectors in Europe. Advancers on the FTSE 100 lead decliners 17-3. Xstrata (XTA.LN) announces divestment of its interest in El Morro project for $465M to Barrick Gold Corp (ABX). Fiat (F.IM) rose following Il Giornale reporting the company gets approval from Head of US auto task force for Chrysler plans. Nokia (NOK1V.FH) downgraded to neutral at HSBC. UK's Brown says government plans to sell £16B of assets over the next two years and ending quantitative easing program now would 'imperil recovery'. Asian markets closed mixed with India outperforming (up 2.3%) after the Prime Minister said the country’s growth would accelerate and stimulus measures will continue (Japan closed, Hong Kong down 0.93%, Australia down 0.29%, Shanghai down 0.38%, South Korea down 0.69%). Chipmakers rose in Taiwan as DRAM prices jumped on speculation a new Microsoft (MSFT) operating system will boost computer sales. Construction stocks also helped support the market. Banks weighed on Australia indices as Credit Suisse called them expensive compared to industrial options. Steelmakers and refiners dragged South Korea down.

Research Calls/Market Moving News:

GOOG (516.26): Google target increased to $620 from $530 at Thomas Weisel: The firm sees Q3 net revenue (ex-TAC) of $4.21B and sees Q3 EBITDA and pro forma EPS slightly below First Call estimates of $2.63B and $5.38, respectively. First Call consensus for revenues (ex-TAC) is $4.22B. The rating remains overweight.

GOOG (516.26): Google estimates increased at Goldman Sachs: The firm notes increasing spending by Google since June and raises estimates for 2009-11 for revenues and EPS; 6-month target increased to $585 from $560. The rating remains Conviction Buy. Deutsche Bank also raised their price target to 580 from 475.

INTC (20.17): Barron's Technology Trader looks towards Intel's (INTC) upcoming earnings release: Intel has rallied strongly on the improving conditions and raised outlook of the company. But to really make an impression with this week's earnings release, the company will have to show investors that the recent positive developments will continue into the seasonally weak Q1. Bulls see a positive in the coming release of Windows 7 and a possible PC upgrade cycle. But Microsoft CEO Ballmer said he is not anticipating a major surge in PC purchases from the OS release. Some analysts fear the current surge for chip makers is from catching up when orders were cut too far and double ordering over fears of shortages from reduced capacities. Barclays suggests switching into defensive chip names like ALTR and XLNX.

IBM (125.93): BMO Capital raises their estimate on IBM ahead of the quarter. “We believe IBM has the opportunity to post some revenue upside in the next few quarters (more likely the December quarter), helped by a gradually improving macro backdrop as well as FX, and continue to move EPS estimates higher. We are raising our 2010 EPS estimate to $10.80 from $10.65 (Street at $10.74), though not making any changes to our 2H09 estimates. We note that a change to non-GAAP would raise EPS by $0.25-$0.30 in 2010.”

BX (14.85): Blackstone Group to list up to eight companies, sell five others over next year - FT Alphaville: The brief writeup cites a letter sent to investors by Blackstone founder Steve Schwarzman 9-Oct. Recall the Independent on Sunday has written recently about the possibility of Blackstone's listing Merlin Entertainments Group and Hilton Hotels.

MA (214.42): V (72.94): Credit Suisse upgrades MA, V: MasterCard (MA) upgraded to outperform from neutral, target raised to $255 from $210. Visa (V) upgraded to outperform from neutral, target raised to $84 from $70.

FCX (74.34): Freeport-McMoRan to consider reinstating dividend as cash flow grows – Bloomberg:FCX CEO Richard Adkerson said in an interview in London that the company will consider reinstating its dividend as its cash flow increases.

Option grants to top executives while takeovers are being negotiated catching regulators' eyes – WSJ: Experts say the practice appears to be legal, and it usually means the executives end up with a higher payout when a deal is subsequently announced. Whether executives are unethically profiting from insider information or, rather, getting incentive to entertain takeover bids that benefit all shareholders is a subject of debate. The article looks at the following specific cases: Omniture (OMTR)'s takeover by Adobe (ADBE), Marvel Entertainment (MVL)'s takeover by Disney (DIS), Teppco Partners (TPP)'s takeover by Enterprise Products (EPD), Compass Bancshares's takeover by Banco Bilbao Vizcaya (BBVA.SM), and Electronic Data Systems's takeover by Hewlett-Packard (HPQ). Executives at the target companies tend to receive seven or eight figures worth of windfall from the options in question, though the specific cashing-out systems vary.

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